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tv   [untitled]    November 15, 2014 2:30pm-3:01pm PST

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and as well as representatives from goldman sachs, and wells fargo, which is one of the lenders very interested in participating in the loan with goldman sachs. so as you know, we have a tifia loan, that closed in 2010, and this is and the state owned parcel and over time, over the next 36 years, until 2050, it is expected that this will generate over 950 million in revenue, and it is a great long term repayment source, for a long term loan like tifia with a 35 year plan and, we have a rating for a 35 year loan with tifia and it is not a mature, credit, yet. though. and we received our first tax increment this year, about a million and a half dollars over the next four years, until 2018 and it has paid it that we will collect about 9 and a half
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million in net tax increment and so not enough to go out for a short term loan. on our own and be solely backed by tax increments. and the tifia loan does have conditions for disbursement and the two key conditions are selling 429 million dollars worth of the former state owned parcel and we are at 222 million now with the sale of parcel t, last year and 2013 and the block, 6, 7, this year and we anticipate reaching the 429 next fall, when blocks five and eight close in september and october respectively, dem nation of the full funding for the project and you will recall, approving the tifia amendment this past may, and under that amendment, the formation of the cfd, which you have been hearing about, in other board meetings is
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sufficient evidence, for tifia of the full funding for the project and the bonds do not have to be sold yet, but the formation of the district is sufficient to demonstrate the full funding to tifia. >> the project is defined as phase one. >> yes, it is just specific to phase one. >> and again, the blocks, five and eight closed next fall and we will be able to and we will be able to draw down on tifia at that time, and early 2015, we have the cash flow needs and we need to certify the contracts and keep the project moving on schedule to maintain our schedule and we did as many as you know, did request from tifia has far back as 2012, that we be able to draw down on the loan earlier, and perhaps, in proportion to the amount of land sales that already had been achieved after months of discussions, they were not able
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to accommodate that request. but they did agree to amend the loans to allow us to pursue a bridge financing to get us to the tifia draw, point. and that was, a key item to be able to bring this transaction to you. >> we began to talk to tifia in 2012, about this issue. and this, it has allowed tjpa to maximize the sale prices for the former state owned parcels and block 8 that will close next october for 70 million dollar purchase price was put out to bid, originally in 2011, and received a high bid of 14 million dollars. and so, we made the decision at that time, to put off the land sales, and the era of 400 million grant was very fortuitus was allowed us to do that and kept the project going
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and the construction going on schedule, and it appears to have been a very wise decision and the difference between 14 million and 70 million for the same parcel with the same development opportunity. so the proceeds from the bridge financing will be used to certificate the trade packages some that have already been awarded but we will need new to proceed and we need the notices to proceed and they will need new authorizations in the early part of next year as well as the trade packages that will be coming before you in the coming months to award, and some soft costs including inspection and subguard premiums and the contractor reimbursables and our construction management over site team. >> so, concurrently, with talking with tifia about the amendment we were also beginning and going through the procurement process for the bridge financing, and we issued an rfp in february and we
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received the proposals from 9 banks and investment firms, and they were a wide variety of proposals and we did not put out a prescriptive term sheet but rather encouraged the proposers to be creative and come to us with their ideas and some ideas were more viable than others. and we narrowed it down to 6 firms to interview. following the interviews with further narrowed it down to three firms and our review panels consisted of tjpa and myself and our financial advicers and our financial counsel and nadia from the city's office of public finance. and a direct loan proposal which is the proposal before you today, from goldman sachs ranked the highest. it had of all of the proposals the greatest senator of execution, and they, had already gone through several levels of internal bank review
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and getting the initial approval before they came to us with the proposal. and it was the most cost effective of the proposals that we saw, and it is actually a lower rate than the tifia loan is, which is 4.57 percent, is the loan. >> this slide and this table shows you a little more detail about those other proposals that we received. and as you can see, in all cases, the cost were potentially higher than the bridge loan in front of you today. and a couple of them would have taken a longer time to execution, and each one either would have required the same collateral that we are going to be talking about today or had other uncertainties associated with it. and again, with the tax increment not being mature and projected to bring in $9 million over the next few years, there is not a great possibility of getting an investment grade righting on
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our own as tjpa with 9 million coming in. and so we have needed to vai stake holder offer a letter of credit or a credit guarantee or some other mechanism in order to glide on the capitol market and if it is not investment grade rated and then the cost does go up. >> so the structure of this loan, it is a bank loan and goldman sachs will be the lead arranger of the agent and wells fargo, has indicated that they are very interested in being one of the major lenders in this as well. and it will be 171 million loan, and so to the tifia loan, and it has a four-year term. we do anticipate drawing down on tifia after we close on blocks five and eight next year and being able to pay back the bridge loan at that time and it does have a prepayment, with no pentty out at 12 months after
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close but we are or it does have a four-year term and just in case. and you know, land sales, sometimes the close is delayed for various reasons and the developer is not ready to close on a particular date and so they can get pushed out from time-to-time. and so, we have got time to deal with anything that may come up with the 4-year term. and it is a variable rate based on the three month (inaudible) as of last week was under a quarter percent and the margin on the loan is 2 and a quarter percent. the interest will be fully funded from the loan proceeds, at close. and so there is no risk of a payment default during the term of the loan because the interest which will be paid out quarterly, is set aside up front. the interest rate will be hedged through an interest rate cap that protects tjpa for the rising interest rates as well
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as allows us to size that capitalized interest account that we need to fund at close and it allows us to synthetically fix an interest rate so we know how much to set aside for interest. this slide shows you the sources, and 171 in total proceeds and these are estimated and based on indicative pricing over the last month or two and the actual numbers we will know, of course, at financial close. and but we anticipate, that over 130 million will be the net proceeds to tjpa, and the capitalized interest account and the premium for the interest rate cap would be a bit over 30 million and in our estimate. and transaction fees of approximately 4 and a half million, that includes setting aside an expense reserve account to fund the expenses that come up over the term of
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the loan. and so, again, totaling 171 million. and if the, if the loan is outstanding for just a year, and then, the issuance cost and the 1-year and actually a bit more than a year, of interest costs could be absorbed about our current budget and our professional services and administration budget category, if we do go to two or three or four years and then we will need to identify. cost cutting measures in that category, or seek the funding for a budget increase. so, the security behind the loan, it is on par with the tifia and so that the lender will have the same right and the same revenue that will go to repay the tifia and the certain contributions in the future from actransit. to the extent that those funds are collected while the loan is
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outstanding and so what is already flowing while the bridge loan is outstanding that it will flow into that reserve account for the benefit of this lender. and the tifia loan and this loan cannot be outstanding at the same time. and so, while they have an equal right to the security, and there is not, there is not an instance in which both loans can be outstanding at the same time. >> and if the bridge financing is still outstanding in three years after close, and then tjpa covenants to, excuse me. to covenants to undergo the process of doing a long term tax increment take out financing and we would, actually execute that financing, at maturity at the 4-year, mark, but we will begin to undergo the process three years after close, if we have not yet paid back the loan. >> and again, because of the lack of maturity at this time, of the tax increment, there is
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additional collateral required for the loan and namely two pieces of real estate and what we call parcel f and block four, and parcel f is slated to be a mixed use, mostly office, tower on howard between first and second street. and block four is the northern portion of the temporary terminal and it is slated for the residential development, and significant portion of affordable housing on that block. and so, this requires some actions from some of our sister agencies. we have an agreement called the option agreement, with ocii, and the office of community and investment and infrainstruct stur which is the agency for the san francisco redevelopment agency and under the option, agreement, they have the exclusive option to sell market and sell, the former state owned parcels on behave of tjpa and they will come to tjpa to come to fund the construction of the project, in order for
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goldman to have a first priority in the collateral. and in addition there are two private parcels the acquisition of which was funded by mtc and the two private parcels sit on either side, and so when that development opportunity is released they will be aggregated making it a more valuable parcel and mta funded that back before project was under construction and so we entered into a quitclaim agreement with mtc, such that if something happened in the project and either did not begin the construction or was not completed those parcels could revert back to them so that they could get some of their investments. and so they, will need to amend that quick claim agreement, and their programming and allocations committee approved that process yesterday. and it will go to the full commission next week, for approval. and cal transneeds to release
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the power of termination over the state parcels that make-up the pieces of collateral and with working with director sartipi staff and they will be and they are willing to do so, and in return a majority of the net proceeds coming will go into the trust account for land sales proceeds, and as such will fund the hard construction costs of phase one. >> and operating on that parcel right now, there is limited risk to ac transit or tjpa of ac transit of not being able to continue to use the temporary terminal and we expect to pay the bridge financing either late next year or early, 2016 and more than 2 years before the completing of the transit center and ac transit center is
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schedule to move because the interest, is funded up front, and there is no possibility of a payment default during the term of the loan and so until if we close in early 2015, we are looking at early 2019 before there is a possibility of a payment default. and as a mentioned before that, before we got to that point, we would have undertaken the process, issue a tax increment and that will return to the bridge financing before returning to the bridge collateral. and so the remaining actions to close, and mtc does have to finalize the approval of the quick claim amendment and as i mentioned that will and should occur next week. the oci, and the city, and the board of supervisors do have to take some legislative actions, and because the city is a party to the option agreement, the board of supervisors has to approve the amendment to the option agreement and because
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the city board of supervisors is also the success or agency in matters represented to the affordable housing, with that on, they have to approve the amendment to the option agreement as well as the subornation of the option that they will be entering into. and those have, been introduced, and i have a schedule on the next slide, but we anticipate that the board will be approving those actions, and at their december 9th meeting. and then, a ocii over site board will have to also, approve the items, and immediately upon the ocii oversight board action will be submitting the ocii related items to the state department of finance to give their approval. and get into the schedule on the next slide. >> and we will be finalizing the bridge financing documents,
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the documents that you have before you, are in substantially final form but there may be minor changes here and there. and the goldman sachs will leave the process of the loan syndication and getting the others to participate and provide portions of the loan and we will be acquiring the interest rate cap and most likely through a competitive bid, and then, of course, financial close. and so, the schedule is slightly changed from the schedule in the staff report, and the board of supervisors is not able to calendar all of the city actions for the november 25th meeting that we had anticipated and so those are now going to be calendared for december 9th. and so, that does push out the schedule a little bit. and ocii is working to schedule an oversight board meeting that same week and so immediately after the board of supervisors acts and so we hope that can be held on december tenth and we will be submitting the item to the state department of finance
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and we anticipate that it will take about 30 days there after and we will be looking at a close in january. and it is some what dependent on how long the state department of finance takes to review the item once we submit, they have five days to either, approve or request additional time and they can request up to 40 additional days to review the item. and so that is the way that the outside close date is closer to the end of january. >> and then, the next fall we will be finalizing the land sales, and requesting a tifia disbursement and repaying the bridge financing, and that concludes my slides and i am happy to answer any questions. >> questions of the directors? >> director reiskin? >> thank you, i know that it has been a tremendous amount of work to get to this point and so congratulations for all of the good work, and that set, and with all of this work, we are talking about a loan that is going to have, or that looks like if all goes well, with a
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short life, right? and we are closing in january, and it could be ready to come out of it by the end of the year? and or even before the end of the year. and so, i guess that the first question, is, what is the actual cash flow need look like during 2015? how much are we going to need and when? and are we going to pull the full, 171? >> if we need to do that? >> the full, 171, would disburse that financial close. and the approximately 30 to 35 million will go to the capitalized interest account and we will pay the fees and the net proceeds will come to tjpa and 124 million going into the land sales and the trust account and then any residual remaining coming into whatever account that tjpa directs to use for the soft cost of the project and it is, under our cash flow planning and it is anticipated that we will use just about all of that net
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proceeds to at least certificate the contracts if not pay the actual invoices over the course of the year but we do need that amount to keep construction moving and certificate the trade packages moving forward. >> okay. and then, given the relatively favorable interest rate, would we potentially delay executing the tifia and paying back this loan? >> it is an interesting question, but the tifia loan interest will be, and it will be repaid from the net tax increment from the pledged revenue and so it is not a capitol cost and to the extent that we were paying the interest from our capitol budget, we will and we would potentially have both of the budget issues on the capitol side. >> and what is the tifia principal plus the interest, do we know what that amount is? >> the principal amount is $171 million and i interest i want to say is about $19 million, is
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that... brian? >> it sounds much too low. >> yeah, i think that i am remembering that from the 2010 approval. >> sorry. i am brian jenkins, with the financial advisor to tjpa, and in terms of the initial tifia interest, it is probably going to be about $30 million. over time, like over the course of the repayment period like over 2050, it is going to be 400 million, in all. like both. >> in total. >> okay, thank you. >> one other tifia related question and in terms of twot conditions, the project being fully funded, and it is possible that we may need to take some action to adjust the budget at this point. before we are ready to execute the tifia loan and does that, how does that timing matter?
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and how would the federal government be looking at or defining the full project funding? >> any budget increase does need to funded in order for us to comply with the goldman sachs, as well as the tifia loan agreement and be able to disperse. >> how are we defining that? >> although the board has taken no action to change the budget or the scope, the current budget and the practice does not include the full scope because it does not include the roof top park and that alone and suggested and based on what is left on the agenda, it does not look like things will term bet ner terms of freing up the space in the budget to conclude the scope in the current board approved budget and which means that the board will have to take the different action, and we know that now and at what point. >> and there are two triggering points that we are waiting for so that we can come back to the
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board with the revised budget. and as you know, we are working with the mayor's office to identify the funding for the elements above the water proofing basically for the above downed elements of the park and we are working on that through the possible sponsor ships or through the (inaudible) once that money is identified, that is the first trigger that will allow us to come to the board and say that we are revising the budget and now we have the park funded and the second trigger that we are working with the mayor's office and meeting with them regularly and letting them know where we are with our bids and where the numbers are coming in at and what we are rewarding and we will be pretty much done by may, or so. june, of 2015, in terms of the award of everything and so we will have a good idea and we will have the opened things up before then and once we know the full universe of what all of the packages are going to cost and we will have the bottom line number and within that time period, is when we
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will be looking in spring of 2015 to come back to the board with a revised budget, is that about right, mark? >> yeah. >> and so, that will all have happened and some time in the middle of 2015 well in advance. >> yes. >> and that will, and whatever budget adjustment that we make, assume thating we have revenues, available, that that would satisfy the requirement. >> correct, and the park is actually not an eligible cost under tifia and thus, under this bridge loan and several, this scope is included as you note in the july, 2013, 1.9 budget, but just a side note. >> but in terms of the project being fully funded, right now, one could argue that the project is not fully funded because the current budget does not include the scope that is part of what the board has most recently approved and so we need to... it seems like we would need to reconcile that to
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meet the tifia project, notwithstanding the specific uses of the tifia dollars are, is that my understanding, the loan requirement? >> and i can't speak for tifia of course, and i am not sure if they would, mind, or care if the park were not included in the budget, because they although i am sure that the local fta office will enjoy having a park nearby, they don't view it as a transit use. >> and that is not part of the project. >> technically, yes, but for our purposes to answer your questions, dekt director yes as far as we are concerned we will be coming back with the above elements for the park and we are working with the mayor's office on identifying that funding. >> so we will have a budget adjustment before we are ready to execute the loan, which will meet theirs. >> we have to. >> okay, all right. >> and i, and i noticed that
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you had the office of the city's office of public finance on the selection committee? >> yes, we have been briefing them because nadia sits on the ocii over board as well and we have briefed the mayor's office as well on the real estate klaleral and so they have been involved. >> and the last question is the margin that you said was set or that you spoke of what it would be for the first year, and what is the... >> it is just a half of a percent each year there after. and so it will go up to 2.75, in the second year and there after a. and increase. >> and the interest rate cap, is going to be subject to some competitive process, do we have, without wanting to compromise the process, do you have a sense of what that might and what could we reasonably expect that cap to be. >> we are considering a cap
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between 50 and 100 basis points and we will be working with a consultant who lives and braoegts interest rate caps. >> over three months, which is currently at or below a quarter. >> and so it is not an absolute cap. it is a cap that floats above the (inaudible)? >> it sets a strike price and so if we have a, why don't i let you speak to this. >> no worries. >> it is an absolute cap. >> if it goes above 50 bips and then a company pays and then takes... (inaudible). >> if the global markets collapse and something else happens in the world we will still be firmly capped regardless of what libor does? >> yeah. >> okay, great. >> thank you. >> kind of a related question to that, to that one, and that is, this is it seems to the
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most open-ended part and that whole cap and everything and you have a break down because the capitalized fees of the 32 million there, and if you just figure out the current interest rate, extend it, and that will be about 16, or 16 million over four years, and so, what does the other 16 million come in for? >> actually, director harper that is a good question, and because of the stepped up nature of the margin and the interest is really like 29.3 million when you calculate it all out and the remainer right now is an indicative estimate for what it might cost and we have tried to use the estimates when the comes close and we are able to generate more in proceeds for tjpa. >> it seems that one of the things that we are counting on
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here is to be able to prepay, essentially and cut it off and whoever is giving that cap insurance, to us, is having to figure out on four years, and the libor to go ahead and the gap going up so much every year, do we get any of that back if we prepay? >> if we prepay, we are able to sell the remainder of the cap and the three years of the cap with that provider to someone else in the market. >> bailsed based on the motion. >> there is no possible if we prepay, right? >> there is no obligation, between ourselves and the bank, but there will be an application between the tjpa and the cap provider. >> after we paid off the loan. >> yes, there is no redemption in the cap, it is a four-year instrument. >> why would there be anything left? >> you say that there is an obligation left. >> we have three years of interest rate protection that we can solve. >> that will be valuable in the
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market to somebody else. >> yeah, this is what i don't like about the derivatives you know? and i can understand, why, and i hate to be in this business. but i mean, but we have to be. any other questions? >> i may have missed it and i might need the clarification and i had a hard time following all of the numbers, but in the best case scenario where things are paid off, within a year from closing, what is the best case and you said that the budget could absorb that. and so my first question is, what are the key risk items, and you may have said this, and just articulate again, the risk items of being able to do that? >> and in the probability and then in the second piece is, if you are not able to do that, and you go and you go to the full extent un

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